While not unemployed, their pain is real and it affects the economy

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"I won't be able to buy to the groceries I need to buy to make sure my family can eat until the end of the month," says Rhonda Wagner, a 52-year-old California state employee who just absorbed a 9 percent pay cut because of a state-imposed unpaid leave.

In cubicles, factories and stores these days, anxious workers are trying to ease each other’s economic fears with something akin to, “Well, at least we still have a job.”

Yet for many, that’s becoming small comfort as more employers cut hours or hire only part-timers. People paid on commission, meanwhile, are suffering as sales dry up. And state workers around the country have been put on unpaid leaves.

These workers aren’t counted in the unemployment rate, which hit 8.1 percent in February. They’re not eligible for federal benefits that provide a safety net for the jobless. Yet their pain is real, and their reduced spending is a drag on the economy.

Call them the walking wounded of this deep recession: millions of workers whose incomes have fallen even as they manage to hold onto their jobs. Their shrunken pay has forced many of them to make hurtful sacrifices.

“I won’t be able to buy to the groceries I need to buy to make sure my family can eat until the end of the month,” said Rhonda Wagner, a 52-year-old California state employee who just absorbed a 9 percent pay cut because of a state-imposed unpaid leave.

Before her pay cut, Wagner said her paycheck from the Department of Motor Vehicles was barely enough for her to pay her bills. Now, she says she’s facing foreclosure and struggling to pay for utilities.

“I will have to rob Peter to pay Paul,” she said. “We’re expected to work, even though we’re not getting paid.”

More than 4.5 million workers last year depended at least partly on variable pay, which includes tips and commissions, according to Labor Department figures. Meanwhile, the number of workers forced into part-time instead of full-time work soared 76 percent in the past year.

The average number of hours all employees work each week has also dropped. The commission-heavy sectors of retail and auto sales have been especially hammered.

That said, workers whose hours or commissions have dropped have still fared better than those who have lost jobs altogether. Even though workers are being given fewer hours to work, average hourly wages have continued to rise over the past year.

Still, many of those who keep their jobs tend to suffer during recessions right along with the unemployed, said Edward Lazear, professor of human resources management at Stanford University and former chairman of President George Bush’s Council of Economic Advisers.

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As the recession cuts demand for goods and services, companies that don’t shed workers outright must squeeze savings from the work force that remains. They typically do so by cutting hours. And as a recession persists, rising competition for jobs tends to shave wages and benefits. Companies lose any incentive to boost pay.

“Other guys are now competing with you for that job, and they’re willing to take that same job for less money,” Lazear said. “While it might not happen in any given month, over the next three years, wage growth will be lower than it would have been had we not had a recession.”

When companies cut or freeze wages for salaried or hourly employees, the workers tends to feel the effect gradually. By contrast, for waitresses, car salesmen, retail clerks and others whose variable pay hinges on economic cycles, a pay drop tends to be as steep as it is quick, said Sylvia Allegretto, an economist at the University of California, Berkeley. That’s because sales-based compensation is more sensitive to swings in consumer spending.

“They’re going to be hard hit, because tips, commissions, overtime and all those things, along with hours, are going to be cut,” as the economy struggles, Allegretto said.

The effect is hard to quantify because the Labor Department doesn’t track pay for this group of workers as a whole, she said. But for many, the pain has been quick and deep.

Until last year, 58-year-old Michael Klein made about $125,000 a year selling Hummer SUVs at a dealership in Concord, Calif., near San Francisco. With 20 years’ experience, Klein was accustomed to moving 15 to 25 vehicles a month. Then gas prices soared and loans dried up. So did his client base.

Now Klein works seven days a week, 12 hours a day, just to sell eight cars a month. His income has shrunk by more than half.

Normally, he’s paid solely through commissions. But when business suffers, his dealership pays a subsidy to make sure a salesperson’s pay for a month is no less than $1,500. Recently, Klein has sold so few cars that for the first time he’s qualified for the subsidy.

Klein, who’s divorced with adult children, can afford about two-thirds of his mortgage payment. He’s trying to re-negotiate his loan. In the meantime, his bank has sent him notices of late and insufficient payments.

“I said: ’If you can work with me, fine. If not, here’s the house,”’ he said. “They don’t want the house.”

Klein has quit traveling to see his daughter and grandchild in Las Vegas. He’s stopped seeing movies and eating out.

But he clings to the spirit of a salesman. His new pitch to customers is that that Hummers and other SUVs can be just as economical as compact cars: They fit more people.

While earnings for commission-based workers drop quickly, those paid in wages will endure a somewhat slower pay decline this year, said Ken Abosch, head of the North American practice for Hewitt Associates compensation consultants.

A Hewitt survey of 640 companies found they planned to raise wages for salaried employees by 2.5 percent this year. That’s the smallest increase since 1976. The companies said executive pay increases would drop from 3.8 percent to 2.2 percent in 2009.

But for millions of workers, the biggest problem is a shortage of hours available. Last month, the average work week fell to 33.3 hours. In January it was an estimated 32.9 hours — the lowest level since the Labor Department began tracking the figure in 1964.

More than 8.6 million U.S. employees are working part time because they can’t find full-time work, according to department figures, the largest number recorded — and a 76 percent increase from 12 months ago.

For workers like Richard Thomas, that means getting by without the health insurance and other benefits afforded to many full time employees.

Thomas worked as a full-time truck driver until last summer, when business slowed. He was paid by the mile. As orders slowed, he sat idle for days at a time. He thought steady work back home in St. Louis would help boost his income. But he could find only a part-time job as a school-bus driver.

Thomas, 36, says he usually gets 25 hours a week of work. On good days, he finds odd jobs, like fueling up buses, to boost his pay. Lucrative gigs, like driving field trips, are handed out based on seniority, and Thomas said he rarely gets them.

The job is helping him pay rent and bills. Even without a family to support, there’s no money left for frills. A typical night of entertainment consists of watching movies on his laptop. He spends much of his spare time hunting for work.

Because they’re working, part time employees like Thomas aren’t eligible for unemployment benefits or welfare. But he said he doesn’t let that bother him.

“I would rather get one of those good jobs myself,” he said.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.